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Student name:__________
1) What is the international monetary system? What are the major trading currencies?
2) Explain the events that led to the failure of the Bretton Woods system of fixed exchange
rates.
3) Discuss the significance of the Jamaica Agreement.
4) Compare and contrast a pegged exchange system with a dirty-float system of exchange
rates.
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5) What is the gold standard? What was the major advantage of the system?
6) With the help of an example, explain how balance-of-trade equilibrium is maintained
under the gold standard.
7) What is the Bretton Woods agreement? How was it different from the gold standard?
8) Identify the multinational institutions that were established at the Bretton Woods
agreement. What were their roles in the international monetary system?
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9) Discuss the arguments that favor a floating exchange rate system against a fixed
exchange rate system.
10) Present the common arguments that favor fixed exchange rates.
11) Describe the different exchange rate policies that are in practice today.
12) What is a currency board? Why do countries choose this type of system? What are the
disadvantages of this type of arrangement?
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13) Recent policies of the International Monetary Fund have drawn a lot of criticism. Discuss
these criticisms.
14) How can international companies reduce their economic exposure in a world of
constantly fluctuating exchange rates?
15) Do you think businesses can influence government policies? Explain your answer.
16) The _____ refers to the institutional arrangements that govern exchange rates.
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A) World Bank
B) international monetary system
C) currency exchange
D) gold standard
17) A _____ means the value of a currency is fixed relative to a reference currency.
A) pegged exchange rate
B) floating exchange rate
C) managed float system
D) fixed exchange rate
18) When a country tries to hold the value of its currency within some range against an
important reference currency such as the U.S. dollar without adopting a formal pegged rate, it is
referred to as a
A) gold standard.
B) pegged float.
C) dirty float.
D) currency peg.
19) The amount of a currency needed to purchase one ounce of gold was referred to as the
A) golden rule.
B) gold standard.
C) pegged gold value.
D) gold par value.
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20) A country is said to be in balance-of-trade equilibrium when
A) the income its residents earn from exports is equal to the money its residents pay to
other countries for imports.
B) it produces all the goods needed for domestic consumption.
C) the income its residents earn from imports is equal to the money its residents pay to
other countries for exports.
D) it produces all the goods needed for exportation.
21) The world’s four major trading currencies, the Japanese yen, the U.S. dollar, the British
pound, and the European Union’s euro, are all free to float against each other. What is this an
example of?
A) pegged exchange rate regime
B) floating exchange rate regime
C) managed-float system
D) fixed exchange rate regime
22) Prior to the introduction of the euro, many EU countries participated in a ________
system, in which the values of a set of currencies are fixed against each other at some mutually
agreed upon exchange rate.
A) floating exchange rate
B) currency board
C) fixed exchange rate
D) pegged exchange rate
23) International Monetary Fund members were _____ in the Jamaica agreement.
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A) not permitted to sell their own gold reserves
B) permitted to sell their own gold reserves, but only at the price set by IMF
C) required to hold their gold reserves in escrow
D) permitted to sell their own gold reserves at the market price
24) The value of U.S. dollar increased between 1980 and 1985
A) despite running a growing trade deficit.
B) despite exporting substantially more than it imported.
C) because of a growing trade surplus.
D) because of strong fiscally conservative policies of the U.S. government.
25) Which of the following is a factor that initiated the collapse of the fixed exchange rate
system?
A) worsening of Great Britain’s balance of trade
B) recession in third world countries
C) price inflation in Europe
D) worsening of U.S. foreign trade position
26) Which of the following changes were made to the International Monetary Fund’s Articles
of Agreement in the Jamaica agreement?
A) IMF members were permitted to use the U.S. dollar as the convertible currency.
B) Gold was declared as a formal reserve asset for IMF members.
C) IMF members were permitted to sell their gold reserves at the market price.
D) IMF members were restricted from entering the foreign exchange market.
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27) _____ exchange rates were declared as acceptable in the Jamaica agreement of the
International Monetary Fund.
A) Pegged
B) Fixed
C) Floating
D) Gold standard
28) Which of the following is the reason the current foreign exchange system is sometimes
thought of as a managed-float system?
A) The exchange rates of a currency are determined by market forces.
B) Governments intervene frequently in the foreign exchange market.
C) Major currencies are allowed to freely float against each other.
D) Countries use a reference currency to estimate the value of their currencies.
29) The rise in the value of the dollar between 1985 and 1988
A) gave U.S. goods a competitive advantage over others.
B) made imports relatively cheap.
C) gave U.S. goods a comparative advantage over others.
D) made imports expensive.
30) The international monetary system refers to the institutional arrangements that govern
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A) microeconomic parameters.
B) exchange rates.
C) gross domestic produce.
D) foreign direct investment.
31) When the foreign exchange market determines the relative value of a currency, we say
that the country is adhering to a _____ regime.
A) currency board exchange
B) pegged exchange rate
C) fixed exchange rate
D) floating exchange rate
32) Pegged exchange rate means that the value of a currency is
A) fixed against other currencies based on an agreement.
B) not determined by free market forces.
C) fixed relative to a reference currency.
D) independent of the valuations of other currencies.
33) A country wanted to hold its currency against an important reference currency without a
formal pegged rate. This is known as
A) a monetary run.
B) a currency flip.
C) an unpegged rate.
D) a dirty float.
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34) After World War II, the world’s major industrial nations arranged their currencies against
each other at a mutually agreed on exchange rate. This is an example of a _____ system.
A) fixed exchange rate
B) dirty float exchange
C) pegged exchange rate
D) floating exchange rate
35) Which of the following statements is true of the gold standard?
A) The gold standard was adopted only by the smaller nations of the world.
B) Currencies were pegged to gold under the gold standard.
C) Convertibility to gold was not guaranteed under the gold standard.
D) The gold standard was not helpful in maintaining balance-of-trade equilibrium.
36) Gold par value refers to the
A) ratio of the price of gold in a currency to the price of gold in U.S. dollars.
B) amount of a currency needed to purchase one ounce of gold.
C) ratio of price of gold in a currency to the price of gold in euros.
D) amount of gold required to equal the reference currency that a nation is using.
37) A country is said to be in balance-of-trade equilibrium when
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A) it has the potential to produce all goods that its residents want without engaging in
foreign trade.
B) the income its residents earn from exports is equal to the money its residents pay for
imports.
C) the country imports all goods that its residents want by engaging in foreign trade.
D) it has the potential to balance the production and procurement of the basic amenities
that it needs.
38) A country’s trade balance is in surplus when
A) its exports are more than its imports.
B) it experiences negative inflation.
C) its exports equal the imports.
D) the prices of commodities are low in the country.
39) Which of the following is an advantage of using the gold standard?
A) The standard makes sure that goods are not priced out from markets due to inflation.
B) The standard does not require a commitment from a nation to maintain its currency’s
value.
C) The standard effectively prevents the devaluation of currencies across the world.
D) The standard contains a powerful mechanism for achieving balance-of-trade
equilibrium by all countries.
40) International Development Association loans
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A) receive direct funding from the World Bank.
B) must be countersigned by a partnering, wealthy country such as the United States,
Japan, or Germany.
C) are funded through subscriptions from wealthy members.
D) receive direct funding from the International Monetary Fund.
41) The agreement reached at Bretton Woods established the
A) International Monetary Fund.
B) World Economic Forum.
C) United Nations.
D) International Atomic Energy Agency.
42) Which of the following statements is true of the Bretton Woods agreement?
A) All countries agreed to fix the value of their currency in terms of gold under the
agreement.
B) The system accepted the British pound as the official reference currency against
gold.
C) The agreement established a floating system of monetary exchange.
D) Two multinational institutions, the World Economic Forum and WTO, were formed
under the agreement.
43) The World Bank was established at the at Bretton Woods conference to
A) establish an international monetary system.
B) promote general economic development.
C) establish the gold standard across the world.
D) fund the initiatives of the United Nations.
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44) Identify the currency that was directly linked to gold under the Bretton Woods system.
A) pound
B) yen
C) euro
D) dollar
45) What will happen if a country increases its money supply rapidly under a fixed exchange
rate regime?
A) Imports will become less attractive in that country.
B) The country will face negative inflation.
C) The trade deficit would widen in that country.
D) The country’s products will become more attractive in world markets.
46) Which of the following is a disadvantage of using a rigid policy of fixed exchange rates?
A) It is likely to create high unemployment in some cases.
B) It will lead to inflationary economies across the world.
C) It is likely to bring about trade wars between nations.
D) It will instigate competitive devaluations and intense competition.
47) What was the World Bank’s initial mission?
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A) implementing a rigid fixed exchange rate regime
B) promoting the gold standard across the world
C) providing low-interest loans to help finance the building of Europe’s economy
D) implementing a flexible fixed exchange rate regime
48) Which of the following arguments is in favor of floating exchange rates?
A) A country’s ability to expand or contract its money supply should be limited by the
need to maintain exchange rate parity.
B) Maintaining balance of trade equilibrium is not in the best interest of a country.
C) Countries can isolate themselves from uncertainties when they trade using a mutually
agreed on exchange rate.
D) Governments can restore monetary control by removing the obligation to maintain
exchange rate parity.
49) Advocates of a _____ argue that removal of the obligation to maintain exchange rate
parity would restore monetary control to a government.
A) fixed exchange rate regime
B) dirty-float system
C) floating exchange rate regime
D) pegged exchange rate regime
50) The monetary autonomy argument is supported by the advocates of
A) a dirty-float system.
B) fixed exchange rates.
C) pegged exchange rates.
D) floating exchange rates.
51) Supporters of floating exchange rates
A) argue that floating rates help adjust trade imbalances.
B) argue that floating rates lead to a more stable world monetary system.
C) claim that trade deficits are determined by the balance between savings and
investment in a country.
D) claim that trade deficits are not determined by the external value of currency.
52) The monetary autonomy argument holds that
A) each country should be allowed to choose its own inflation rate.
B) inflation is beneficial to a country’s economy and growth.
C) inflation is detrimental to a country’s economy and growth.
D) countries should restrict inflation based on the global standards.
53) Which of the following arguments is against the use of fixed exchange rates?
A) Monetary discipline is the most important determinant of a strong economy.
B) Each country has the freedom to choose its own inflation rate.
C) Market speculation can cause fluctuations in exchange rates.
D) Governments are likely to expand the monetary supply far too rapidly due to political
pressures.
54) Which of the following arguments strengthen the idea of floating exchange rates?